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From May 24, the government will withdraw its unlimited guarantee of Northern Rock savings. If you’re a saver with the bank, what does it mean for you?

What was the guarantee?

You probably remember the queues around Northern Rock banks back in 2007, as thousands of savers tried to withdraw their money from the beleaguered bank after it approached the Bank of England for assistance.

In order to calm the panic, the then-chancellor Alistair Darling moved fast, promising that the government would guarantee all savings held with the bank, meaning if it went under, the government would reimburse people’s losses in full.

Since then, Northern Rock savers have enjoyed the security of a complete guarantee of their money, instead of the £50,000 compensation cap most savers have with any one bank. That’s now ending as the bank inches towards independence.

Is Northern Rock still government-owned?

Yes. While this is a step in the right direction for the bank, it does remain under government ownership for the time being.

Is the guarantee no longer needed?

The bank has made considerable progress since the government had to step in and bail it out, and it’s been decided that the extra protection is no longer needed.

In fact, it could be argued that having it in place gives the bank an unfair advantage over its competitors.

What protection will I have now?

Under the Financial Services Compensation Scheme (FSCS), up to £50,000 of your savings are protected if your bank goes under. If you share a joint account, up to £100,000 is protected.

Before the financial crisis, the scheme would pay out a maximum of £35,000 for savings lost with any one bank, but the higher limit came into effect October 2008, giving savers even more protection.

However, it’s important to bear in mind that the limit is for each banking licence, not each account. As many different banking brands are owned by the same organisation and operated under one banking licence, that means you should choose banks carefully to make sure all your money is covered.

For example, HBOS, which is now part of Lloyds Banking Group but retains its own banking licence, offers savings accounts under numerous brands including Halifax, Bank of Scotland, Birmingham Midshires, Intelligent Finance and the AA. If you have a savings account with Halifax and another with Birmingham Midshires then only £50,000 would be protected.

However, if you had a Halifax account and a Barclays account you’d have £100,000 totally guaranteed because they have separate banking licences.

The mergers and takeovers of the last few years make things even more complicated. At the moment, Alliance & Leicester (A&L) has its own banking licence even though it is owned by Santander so savers with a Santander savings account and A&L account have £100,000 of protection. That will change later this month. From 28 May A&L will share Santander’s licence, so the total protection across both brands will drop to £50,000.

What if I opened a fixed term account with Northern Rock while the guarantee was in place?

Don’t worry, if you opened a fixed rate bond while the 100% guarantee was still in place, then that full protection remains until the bond ends. So, if you took out a five-year bond in 2009, the government guarantees the full amount until it ends in 2014.

Does anywhere have a 100% guarantee?

There is still one place where your entire deposit is completely guaranteed and that’s National Savings & Investments (NS&I), the Treasury-backed organisation behind premiums bonds and a number of other savings vehicles.

Because it’s backed by the Treasury, 100% of your money is guaranteed. However, this extra protection will cost you as NS&I isn’t paying the most competitive rates, so you could end up earning less in interest.

How can I protect all my savings?

You can get full protection for your savings without relying on the less-competitive rates available at NS&I.

Simply make sure that you save no more than £50,000 with any one institution. Use our list of who owns who to make sure you don’t save more than you should under any one licence, and then you can enjoy full protection and competitive rates on all your savings.